Tesla May Lose The War Against The Incumbent OEMs – Shortseller

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Stanphyl Capital’s commentary for the month ended March 31, 2023, discussing their short position in Tesla Inc (NASDAQ:TSLA).

Tesla kicked off 2023 with massive, margin-destroying January price cuts worldwide (on top of large cuts in Q4 2022) and then cut them again in March (on the Models 3&Y in Europe and the S&X in the U.S.).

And while this will undoubtedly generate more unit deliveries (perhaps in the 430,000s in Q1 vs. 405,000 in Q4 2022), due to the price slashing 2023’s earnings will be at least 25% lower than 2022’s. In other words, Tesla is no longer a “growth” company unless you define “growth” as declining earnings!

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Most disturbingly for Tesla bulls, despite the massive price cuts vs. Q4 2022, at 1.8 million units the company is only guiding to 11% more delivery volume vs. Q4’s 405,000 annualized run-rate of 1.62 million.

It’s also only guiding to 2% more production than Q4’s annualized rate of 1.76 million, so where will the “volume savings” to support price cuts come from? And what will Tesla do for its next “growth trick”? Sell cars at a loss? Sell a tiny subcompact beginning in 2025 with an even smaller margin?

Meanwhile the incumbent auto companies can better afford (earnings-wise) to slash prices on their EVs, as those prices can be cross-subsidized by their 95% of volume that comes from highly-profitable ICE vehicles, while Tesla now has nothing that’s “highly profitable.

Here from Automotive News is an excellent example of how OEMs will maintain high overall profitability despite losing money on EVs as they “scale” EV production to Tesla’s cost level:

Ford Loss EVs

So while Tesla may “win” an EV price war against other pureplay EV makers, it will lose that war against the incumbent OEMs. Goodbye “story-stock tech company” and hello “low-margin, cyclical car company” in an industry with single-digit PE ratios.

And for Tesla that could mean as little as 8x $2.80/share in 2023 GAAP earnings = a stock price of $22/share vs. March’s close of $207.46.  (And please don’t lecture me about Tesla’s “battery business,” which nets almost nothing and is in an extremely competitive, low-margin industry for every participant.)

Meanwhile, Tesla has objectively lost its “product edge,” with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. (Tesla ranks near the bottom of Consumer Reports’ reliability survey.) And Tesla is opening its U.S. charging network to everyone (which it already does in much of Europe), eliminating the last reason to buy its now trailing-edge EVs.

In fact, Tesla is likely now the second, third or fourth choice for many EV buyers, and only maintains its volume lead though a short-lived edge in production capacitythat will disappear over the next 12 to 36 months as competitors rapidly increase the ability to produce their superior EVs.

Tesla’s poorly-built Model Y faces competition from the much better made (and often just better)electric Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, Cadillac Lyriq, Nissan Ariya, Audi Q4 e-tron, BMW iX3, Mercedes EQB, Volvo XC40 Recharge, Chevrolet Blazer EV & Equinox EV and Polestar 3. And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, the great new BMW i4, the Hyundai Ioniq 6 and upcoming Volkswagen ID.7, and multiple local competitors in China.

And in the high-end electric car segment worldwide the Porsche Taycan (the base model of which is less expensive than Tesla’s Model S) outsells the Model S, while the spectacular new BMW i7, Mercedes EQS and EQE, Audi e-Tron GT and Lucid Air make it look like a fast Yugo, and the extremely well reviewed new BMW iX, Mercedes EQS SUV and Audi Q8 eTron (as well as multiple new Chinese models) do the same to the Model X.

And oh, the joke of a “pickup truck” Tesla first previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as by the time it’s in meaningful mass-production in 2024 it will enter a dogfight of a market vs. Ford’s hot-selling all-electric F-150 Lightning and GM’s fantastic 2023 electric Silverado (which already has nearly 200,000 reservations), while Rivian’s pick-up has gotten excellent reviews and Ram will also be out with a great electric truck in Q4 ‘24.

Tesla is Netflix

Indeed, for years I’ve said “Tesla is Blackberry”—the maker of a first-generation version of a product that—once the market was proven—would be supplanted into niche obscurity by newer, better versions; now I can provide a much more recent analogy: Tesla is Netflix.

For years Netflix had an absurd valuation based on its pioneering position in streaming media, but once it proved that such a market existed myriad competitors swarmed all over it, and in 2022 the stock collapsed. I believe Musk knows that Tesla is “the next Netflix” (hence his recent “Twitter buying distraction”), with VW Group, Hyundai/Kia, Ford, GM, Stellantis, BMW, Mercedes, BYD & other Chinese competitors.

And, in a few years, Toyota & Honda, being the Disney, HBO Max, Amazon Prime, Peacock, Hulu, Paramount+, etc. of the electric car market, stealing Tesla’s share and eventually pounding its stock price into low double-digits, where it would be valued as “just another car company.”

Meanwhile, the NHTSA has initiated the first of what will likely be multiple recalls of Tesla’s fraudulently named “Full Self Driving,” and in January it was revealed that Elon Musk personally directed its fake, fraudulent promotional video (something extremely similar to what Theranos did with its blood machines and Nikola with its truck), and that the DOJ is investigating him for it and so is the SEC.

The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of “full self-driving.”

And, of course, there will be a massive “valuation reappraisal” for Tesla’s stock as the world wakes up to the fact that its so-called “autonomy technology” is deadly, trailing-edge garbage that Consumer Reports now ranks just seventh vs. competitors’ systems (behind Ford, GM, Mercedes, BMW, Toyota and Volkswagen) and Guidehouse Insights now rates dead last:

Tesla vs competitors

Meanwhile, the NHTSA continues to report a slew of Autopilot-related deaths, yet Tesla has sold this trashy software for over six years now:

Tesla Self Driving

…and still promotes it on its website via the aforementioned completely fraudulent video! (For all Tesla-related deaths cited in the media—which is likely only a small fraction of those that have occurred—please see TeslaDeaths.com.)

Want to see another Elon Musk/Tesla fraud summarized in a simple bar graph? In this recent Consumer Reports test, note which of these cars never comes close—in any environmental conditions—to meeting its claimed EPA range:

Tesla EV Range

Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars. And if new-format 4680 cells enter the market, even if Tesla makes some of its own,  other manufacturers will gladly sell them to anyone, and BMW has already announced it will buy them from CATL and EVE.

Regarding safety, as noted earlier in this letter, Tesla continues to deceptively sell its hugely dangerous so-called “Autopilot” system; God only knows how many more people this monstrosity unleashed on public roads will kill.

Elsewhere in safety, the Chinese government forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up, and Tesla has been hit by a class-action lawsuit in the U.S. for the same defect.

Tesla also knowingly sold cars that it knew were a fire hazard and did the same with solar systems, and after initially refusing to do so voluntarily, it was forced to recall a dangerously defective touchscreen.

In other words, when it comes to the safety of customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the massive number of lawsuits of all types against the company continues to escalate.

So Here Is Tesla’s Competition In Cars…

(note: these links are regularly updated)

And In China, Where Tesla’s EV Market Share Is Now Declining…

Here’s Tesla’s Competition In Autonomous Driving; The Independents All Have Deals With Major OEMs…

Here’s Where Tesla’s Competition Will Get Its Battery Cells…

Here’s Tesla’s Competition In Charging Networks…

And Here’s Tesla’s Competition In Storage Batteries…


Mark Spiegel

Stanphyl Capital